If you’re an entrepreneur looking to start a business in Chandigarh of your own or to seek finances for your venture, you may probably be worried about the accounting& book-keeping involved in the process. However, it is not as hard as you might feel. You will be needed to familiarize yourself with certain important concepts, and one item you will need to familiarize yourself with is a profit and loss (or P & L) statement.
Among the variety of financial statements and accounting records, the profit and loss statement is often the most overlooked one despite its vital significance. It is one of the key statements that records and summarizes the position of revenues & expenses incurred by a business in a given period. It shows the overall profitability of your business for the specific period over a period (monthly, quarterly, and yearly), however, should be preferred to be prepared at least every quarter and annually.
Regardless of the size of the business, a P & L statement states the expenses that have emerged during the period and the gains earned by the start-up business. Typically, a P & L statement reports information related to-
- Revenues for the accounting period (monthly, quarterly, or yearly)
- Expenses incurred by the business to generate profits
- Taxes paid and depreciation
- Earnings per share number
Therefore, a profit & loss statement goes by various names such as-
- Income statement,
- Income and expense statement,
- Statement of financial results
- Statement of Operations, and
- Statement of Earnings.
Regardless of the level of operations or profitability of a business, every start-up must keep a track of all its financial progress by reviewing and reflecting on the profit and loss statements prepared and presented to the internal management from time to time, which will allow them to determine whether the business is profitable and growing, or it’s running on losses and needs some corrective actions.
It is important to understand that, only a great idea and an endless drive do not make a start-up successful, especially where start-up entrepreneurs tend to ignore the mundane accounting tasks. These statements should be among the first files to be generated along with a budget and a costs worksheet. While some P&L statements are simpler and easier to understand, others may get extremely complex.
All about Profit & Loss account for Startups in Chandigarh
Chandigarh is a union territory in India and is the capital of its neighbouring states, Punjab and Haryana. Chandigarh is among the early planned cities and is internationally famous for its architecture and urban designs. Mohali and Panchkula are the Metropolitan areas of Chandigarh. According to the 2011 Indian census, the total population of Chandigarh is 1,055,450, and the City’s population density is about 9,252 persons per square kilometer. Chandigarh has a sex ratio of 818 females for every thousand males. While English is the state’s sole official language, Hindi and Punjabi are the other two most spoken languages in Chandigarh.
Chandigarh was declared the third-largest deposit center and seventh-largest credit center nationwide by the Reserve Bank of India in 2012; that’s why it is counted among the wealthiest towns in India. Chandigarh has three government bases – Chandigarh administration, Punjab government, and Haryana government. The city has three government bases, and that’s why the government is a significant employer in the City. Even the people residing in Chandigarh are mainly those who were working for these governments or are the retired government officials or Army officials. Because of this reason, the Chandigarh is also known as ‘Pensioner’s Paradise.’
The prominent industries in Chandigarh are paper manufacturing, metal, alloy, pharmaceuticals, food products, sanitaryware, etc. Trade and businessis the main occupation in Chandigarh. Many prominent Indian firms and multinational corporations, including EVRY, Dell, Tech Mahindra, Airtel, etc., have established their bases in the City and its suburbs.
The startup ecosystem in Chandigarh
Before discussing the startup ecosystem of Chandigarh, you must know what a startup is. In simple words, a startup is a business still in its initial growth stage. Chandigarh is a Union Territory, and it is also the capital of Punjab and Haryana. Economically, Chandigarh is the highest-income town and the most well-planned and cleaner City in India. If roughly estimated, Chandigarh has 2500 plus small-scale businesses, which means that the startup ecosystem of Chandigarh is quite supportive.
This startup policy of Chandigarh was officially released by the government of Chandigarh in 2017 with a vision to create a world-class startup ecosystem in the City. As already cleared by the Chandigarh government that it wants to make a world-class startup ecosystem, the union territory has mainly focused on Information Technology. It would be fostered through strategic investments and policy interventions.
To build a strong startup ecosystem, the government is leveraging the entrepreneurial spirit in the City to attract young people to become an entrepreneur. The nodal agency responsible for developing the startup ecosystem is the ‘Industries Department of the Chandigarh government.’ Under the startup policy of the Chandigarh government, more than 80 startups are registered.
The aim of the startup policy of the Chandigarh government is to focus on –
• the development of Information Technology (IT) startups
• develop entrepreneurship through entrepreneurship development programs
• development of 50,000 square feet of incubation space
• provide hand-holding support to students and young entrepreneurs to launch their startups without any chaos.
The startup policy of the Chandigarh government has successfully shown impeccable performance in awareness and outreach.
Profit-making startup ideas in Chandigarh
Recycling Business
Chandigarh is among the clean cities in India, and that’s why the recycling business in Chandigarh is both economically and physically advantageous. Chandigarh’s recycling business provides many investment opportunities that involve construction, waste recycling devices, recycling cell phones, composting laptops, reusing, and other digital item recycling. If you are a nature lover and have decent money, you can invest in the recycling business as it will yield high profits.
Food processing Business
The majority of cereals generated are not consumed in their raw form by the customers, so through food processing, the gross material is converted into simple to prepare food. The food processing business has a wide scope in Chandigarh. Chandigarh produces bushels of grain, rice, and corn each year which means that they need to process the cereals for customers’ consumption. Food processing units need simple investment and can help you earn long-term profits.
Livestock Farming
Chandigarh is incomplete without milk, creamy lassi, and butter so livestock farming in Chandigarh is also a good idea. Livestock farming consists of a significant proportion of Chandigarh’s economic development. Chandigarh government is very determined to promote livestock farming. The government provides appropriate livestock medical care facilities and the ability to augment livestock numbers by establishing a semen bank.
Restaurants
The cuisines of Chandigarh are very creamy and spicy as they consist of lassi, chole bhature, parantha, and Amritsari kulcha. Chandigarh has a very delicious cuisine that attracts tourists. So, opening a restaurant in Chandigarh is an excellent idea. The traditional Punjabi food is loved by tourists and can help you in making profits. To open a restaurant in Chandigarh, you need a reasonable investment. Besides this, you need to have enough money to run the restaurant for at least six months without any profits. Though the profit earning will be late, this will surely provide you with a long-term and stable business.
Information Technology
The network connectivity of Chandigarh and its connectivity with states like Haryana, Punjab, Delhi, and Himachal Pradesh attract the IT pool of talent and IT companies. Many prominent IT companies are looking to establish their base and offices in Chandigarh. Chandigarh and its suburbs are a significant home to Indian and international companies. So, starting an information technology business is a perfect idea because you can start a small company in information technology with a reasonable amount of investment.
Balance Sheet vs. Profit And Loss Statement in Chandigarh
| Points of Difference in Chandigarh | Balance sheet in Chandigarh | Income statement in Chandigarh |
| i. Time | A balance sheet provides a clear summary of the financial soundness of a business enterprise at any specific point in time. | The income statement provides a summary of the financial performance of the company over a given period. |
| ii. Key items | Assets & liabilities and shareholder’s equity, debts, etc. are further categorized under a balance sheet to provide and thorough information. | An income statement provides information related to gains & losses, expenses, and revenues etc. realized from the purchase or sale of any assets.
|
| iii. Financial analysis | It helps a business to
Measure its financial position using various ratios such as current ratio, debt-to-equity ratio, and return on shareholder’s equity. |
It uses various ratios such as
gross margins, operating margins, price-to-earnings, and interest coverage to provide a clear picture of the financial performance of the start-up. |
| iv. Usage | Investors and Lenders use a balance sheet to determine the soundness and availability of assets for collateral. | Internal management, shareholders, investors, etc. use it to assess the performance and prospects of a business. |
Types of Profit and Loss (P&L) Statements in Chandigarh
There are two methods of preparing a Profit & Loss Statement in Chandigarh -cash and the accrual method. Each of whom has been described below-
I. Cash Method– The cash method, which is also known as the cash accounting method, is used in cases where only cash goes in and out of the business and only accounts for cash received or paid. A business using the cash method records transactions as revenue whenever cash is received and as liabilities whenever cash is used to pay any bills or liabilities. This method is simple to use and usually relevant for smaller businesses.
II. Accrual Method– The accrual accounting method is commonly used by start-ups and other businesses where payments made or received are not limited to cash payments only. This means that a start-up using the accrual method accounts for money that it assumes to be received in the future. For instance, a company that has delivered any product to its customer may record the transaction under revenue head but may not have received payment in actuality. Similarly, liabilities are accounted for even when the business has not paid for any expenses yet.
How to create a profit and loss statement for your start-up in Chandigarh?
The choice of preparing profit & loss statements is entirely dependent on the concerned start-up business and their choice. While some businesses might choose to prepare and review profit and loss statements monthly, others decide to do it quarterly and yearly. Provided below is the step-by-step process of creating a profit and loss statement for your business-
i. Calculation of Revenue in Chandigarh
In the first step towards the creation of a profit & loss statement, you will be required to calculate the total revenues received by the business during the year. For which, you can receive current account balances from the general business ledger such as cash and current accounts receivable balances. Be sure to include account receivables whether or not you have collected that revenue or not for that period (month) and similarly if you wish to prepare P&L for a quarter, add up the revenues for those three months.
ii. Calculate the Cost Of Goods Sold(COGS) in Chandigarh
The cost of goods sold forms a crucial part of any statement of profits & losses. It includes all the costs required to be incurred for producing any product. For instance, if a start-up offers fancy bags, you need to include the cost of material & supplies required to manufacture them. Similarly, if your start-up offers salon services, you will be required to include the cost of your time or your employee’s time that provided the service.
iii. Deduct COGS expenses from Revenue in Chandigarh
Now, once you have calculated revenues and COGS, you will need to deduct all expenditures of COGS to determine the gross profits of your business. Gross profits represent the profits earned by your business from the sale of your products or services. However, if the revenues are lesser than COGS, it means the revenues are insufficient to meet COGS expenses, and the business is running through losses.
Gross Profit/Loss= Revenues- Cost of Goods Sold (COGS)
iv. Calculate operating expenses in Chandigarh
The next thing required to be calculated is operating expenses. Such expenses include expenses like rent, travel, payroll, equipment, utilities, postage, etc.
v. Deduct operating expenses from gross profit in Chandigarh
Once you find out the value of operating expenses, now you may want to find out the value of total operating profit/loss after deducting operating expenses from the value of gross profit.
Operating Profit/Loss= Gross Profit – Operating Expenses
vi. Add additional incomes in Chandigarh, if any
If your start-up has gained any additional includes which have not been included in the value of revenues before, such as interest received on income or dividends received, etc. add them to the operating profit.
By doing so, you will reach the total Earnings before Interest, Taxes, Depreciation, And Amortization, or EBITDA.
EBITDA = Operating Profit + (Interest Income + Dividends Earned)
vii. Calculate interest, taxes, depreciation, and amortization in Chandigarh
Next, calculated any applicable payments such as interest to be paid, taxes due, and depreciation and amortization expenses.
viii. Subtract calculated expenses from EBIDTA in Chandigarh
In the final step, deduct expenses calculated above (interest, taxes, depreciation, and amortization expenses), where applicable and you will arrive at your net profit.
EBIDTA – (Interest + Taxes + Depreciation) expenses = Net Profit/Loss
What are the components of the P & L statement in Chandigarh?
Typically, a P&L statement comprises two main parts, namely-the income earned during the period of the statement and the expenses incurred during the period. These two parts of the statement are broken down into a series of entries as per the relevance of a business, some of them have been explained below-
i. Revenues or Profits in Chandigarh
The first component required to be reported through a profit& Loss statement includes- revenues and it includes all items of income for a business. It includes entries like sales, gross receipts, fees, or any other term used to describe the operating revenue of a start-up. Usually, operating revenue is broken out of non-operating expenses like interest incomes or dividends, etc. Again, the accounting method adopted by the start-up may affect the revenues recorded on P &L during the period. Under the cash method of accounting, revenues could be reported only when cash has been received, while under the accrual method of accounting revenue may only be reported at the time of sale itself. However, to ensure accuracy of the P&L, businesses might adjust gross sales on the experience of customer returns or refund requests by establishing an allowance and getting it against revenues.
ii. Cost of goods sold (COGS) in Chandigarh
Every start-up must find out the value of COGS and figure out ways to keep them minimum for higher profits. COGS or cost of goods sold is the cost of inventory or materials required to manufacture a product, which is then subtracted from the sales to find out the actual revenue (gross profit) from the sales. For example, a company incurs Rs.20 as the cost of inventory and sells it for Rs. 100 would get Rs.100 in revenue, however after taking the Rs. 20 of COGS into account, he would report Rs.80 in gross profit.
iii. Expenses for a business in Chandigarh
All those expenses incurred to operate a business form expenses part of a profit& loss statement. These expenses could include-
- Advertisement & promotional costs
- Employee salaries and benefits
- Interest expenses
- Office supplies & stationery
- Payments to vendors/contractors/suppliers, etc.
- Professional fees for accountants, attorneys, auditors, etc.
Accounting for certain expenses requires an understanding of the terms such as depreciation or amortization of assets of the start-up. For instance, assets such as office equipment must be capitalized as an asset and written off over the useful life of the item. For example, if it the worth Rs.1000 it would be reported over five years.
Each year the profit and loss statement reflects 20 percent on the cost of the computer or Rs.200 as expenses. Non-operating expenses, such as interest and taxes, need to be broken out separately from operating expenses for illustration.
iv. Gross profit in Chandigarh
The Gross Profit (GP) of a business is the value obtained after deduction of the cost of goods sold and sales returns (if any) from total sales revenue. It is located on the statement of profit and loss) prepared by a company and used to determine the percentage of the gross profit margin of an entity. Likewise, if the start-up is engaged in services without inventory, then the value of gross profit and the gross receipts will be equal.
v. Net profit or loss in Chandigarh
After the calculation of taxes due and subtracting them from any pre-tax income, the remaining amount will equal either the profits/losses of a start-up for the relevant period. When trying to compare businesses in different industries and tax structures, or where the exact numbers aren’t yet available, the value of net profits/losses will be equal to the earnings before interest, taxes, depreciation, and amortization.
Format of P & L in Chandigarh
In India, there are two formats for P&L statements in Chandigarh-
- The horizontal format of the P&L Account
- The vertical format of the P&L Account
The profit & loss statement of the legal entities like a company has to be prepared in accordance with the provisions of Schedule III of the Companies Act, 2013. For the complete format please click –https://www.mca.gov.in/Ministry/pdf/NotificationScheduleIII_12102018.pdf.
What are the benefits of preparing a P&L statement in Chandigarh?
i. Understanding the financial health of your Organization-The primary purpose of a P&L statement is to offer a clear position of the overall financial position of a start-up. It also helps a company’s management to understand the business’s net income, study expenses, and take corrective actions to reduce losses. For example, an entrepreneur may want to know whether his business has enough profits to cover the cost of a new project or if he needs to borrow funds for the same.
ii. Informed Decision Making-A P&L could help the entrepreneurs and business owners to make critical business decisions such as whether they should make large purchases in the immediate future or put such purchases on hold until the start-up reaches a better financial position. Additionally, it can help them to track the efficiency of start-up and performance in the market against its competitors, and growth of the start-up in both the short- and long-term. Further, to represent the value of the business to investors, creditors and shareholders, tech start-ups demonstrate success through their business model, such as “acquisition of key customers, the introduction of unique products & services, technological innovations, marketing, and distribution associations, new subscriber counts, revenue per subscriber numbers, and geographical distribution of customers.
iii. Raising Finances or Seeking Loans– Similarly, when a start-up wishes to raise funds and seek investors for the purpose or where a business owner intends to sell his business, any interested party would want to know the profitability or growth prospects for a business, for which they may seek P&Ls for several years.
Similarly, when a business makes an application for a loan to any bank or financial institution, they will evaluate your net income and operating income against the expenses, debts, and taxes to ensure the viability and worth of offering financial assistance. If the net business earnings are on an upscale mode, there are chances of you getting higher funds from banks or better deals from investors.
iv. Planning & Forecasting–Another benefit of using a Profit & Loss statement is for planning and forecasting By applying your business plan to generate a predictive P&L report, add the expected revenue and expenses to compute the net earnings. If your findings are lower than expected, you can make changes in the business strategies. Similarly, the P&L so created could be used to strike a comparison with the forecasted and actual P&L.
v. Fulfill Compliances & File Taxes-If you regularly record and update your P&L statements along with the other financial statements, you will get all the information required to sort out the information to sort out your business taxes. Further, each year every company is required to file a copy of financial statements to the ROC which includes profit & loss statements within 30 days from the date of holding AGM. Therefore, recording, preparing, and updating P&L statements helps a start-up to manage accounts-related as well as tax compliances easily.
Compliances related to P & L statement in Chandigarh
As provided above, it shall be compulsory for every business to file a copy of financial statements (along with profit & loss statement for the year) in e-form AOC-4 for every financial year with the Registrar of Companies within 30 days of its Annual General Meeting.
However, where the company fails to file a copy of AOC-4 within the due date, the company shall be liable to a penalty of at least ten thousand rupees and in case of continuing failure, a further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh rupees.
Further, every key officer of the company (i.e. managing director, Chief Financial Officer of the company) or in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the Directors of the company, shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of fifty thousand rupees.
Now, every company has also been put under an additional obligation to submit a copy of profit & loss accounts in standard e-form 23ACA. Along with such a form, the company will be required to submit a copy of the audited P & L statement. Further, such form has to be digitally signed by a practicing CA or CMA, or CS, certifying that the information entered in 23ACA is correct and a copy of audited P&L has been provided along with the form.
Therefore, a statement of profits & losses is one of the key financial statements that indicate the performance of an entity for a given period in a nutshell and shows the number of costs borne by the entity to earn the stated revenue over that period. It is the most sought-after statement that the higher management reflects to formulate strategies and evaluate past business performances. Further, a P&L statement supports various analyses such as ratio analysis, financial analysis, costing decisions, pricing decisions, budget controls, etc., which are then prepared out of these statements. When viewed in conjunction with other statements such as balance sheet and cash flow statement, it gives insights into the profitability of any entity.
However, to achieve proper control over the finances of your start-up in Chandigarh, it is necessary to maintain and your P&L periodically and help your business to run on its path to profitability & success.
